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Shares of CBOE Holdings, Inc. (CBOE - Free Report) have gained 15.4% year to date, underperforming the 23.4% growth for the Zacks categorized Securities Exchanges industry.
The company's third-quarter 2016 was not impressive, though operating earnings of 58 cents per share beat the Zacks Consensus Estimate by a penny. The bottom line decreased 24% year over year, due to lower transaction fees owing to reduced trading volumes and lower average revenue per contract, partially offset by higher market data fees. Also, the quarter recorded an increase in operating expenses.
However, we see potential upside for the stock in the near term, given the company’s strength in its proprietary products, including options and futures on the CBOE Volatility Index (VIX Index) and S&P 500 options (SPX), launch of new products and significant benefits from the proposed acquisition of Bats Global Markets.
What Should Favor the Stock Ahead?
CBOE Holdings started fourth-quarter 2016 with a 6.8% decline in monthly trading volume in October, on a year-over-year basis to 92.1 million contracts. While futures volume increased, options decreased. However, the company reported 42% year-over-year increase in trading volume for November to 117.6 million. Total options contracts of 111.9 million increased 41% from the year-ago period and total futures contracts surged 63% year over year to 5.7 million. While volume growth, so far, for the fourth quarter looks mixed, it should support the top line, to some extent.
Focusing on expense management, CBOE Holdings expects core expenses to be slightly below the initial guidance range of $211–$215 million for full-year 2016. In addition, the company anticipates depreciation and amortization to be slightly below the prior guidance range of $46–$48 million for the year.
Further, the Chicago, IL-based company remains focused on expansion through strategic acquisitions. In Sep 2016, CBOE Holdings announced that it is set to acquire Bats Global Markets for $3.2 billion in a cash-stock deal. The proposed acquisition, expected to close in first-half 2017, will expand and diversify CBOE Holdings’ product portfolio with the addition of U.S. and European cash equities, Global ETPs and Global FX. The combined entity will not only offer industry-leading market data products and services, but will also enjoy a compelling global distribution network.
Notably, CBOE Holdings anticipates achieving $50 million in annualized expense synergies within three years of the acquisition. The metric is likely to increase to $65 million within five years of the closure of the transaction. Undoubtedly, the acquisition creates opportunities for substantial EPS growth in future.
However, we remain apprehensive due to several headwinds, including stiff competition and stricter regulations in the industry. Also, the derivatives exchange industry exhibits weakness, primarily due to the deteriorating credit quality that impacts liquidity, along with a decline in matched share volume and value traded.
Over the last 30 days, the Zacks Consensus Estimate for 2016 and 2017 increased slightly to $2.37 and $2.62, respectively.
CBOE Holdings currently carries Zacks Rank #3 (Hold).
Stocks to Consider
E*TRADE Financial Corp. : Over the last 60 days, the Zacks Consensus Estimate for the current year increased 3.5% to $1.79 and advanced 5.2% to $1.83 for 2017. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Synchrony Financial (SYF - Free Report) : The Zacks Consensus Estimate for 2016 moved up 1.5% to $2.68 for 2016 and 1.7% to $3.08 for 2017, over the last 60 days. The company carries a Zacks Rank #2 (Buy).
Zacks' Top Investment Ideas for Long-Term Profit
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Right Time to Hold CBOE Holdings (CBOE) Stock?
Shares of CBOE Holdings, Inc. (CBOE - Free Report) have gained 15.4% year to date, underperforming the 23.4% growth for the Zacks categorized Securities Exchanges industry.
The company's third-quarter 2016 was not impressive, though operating earnings of 58 cents per share beat the Zacks Consensus Estimate by a penny. The bottom line decreased 24% year over year, due to lower transaction fees owing to reduced trading volumes and lower average revenue per contract, partially offset by higher market data fees. Also, the quarter recorded an increase in operating expenses.
However, we see potential upside for the stock in the near term, given the company’s strength in its proprietary products, including options and futures on the CBOE Volatility Index (VIX Index) and S&P 500 options (SPX), launch of new products and significant benefits from the proposed acquisition of Bats Global Markets.
What Should Favor the Stock Ahead?
CBOE Holdings started fourth-quarter 2016 with a 6.8% decline in monthly trading volume in October, on a year-over-year basis to 92.1 million contracts. While futures volume increased, options decreased. However, the company reported 42% year-over-year increase in trading volume for November to 117.6 million. Total options contracts of 111.9 million increased 41% from the year-ago period and total futures contracts surged 63% year over year to 5.7 million. While volume growth, so far, for the fourth quarter looks mixed, it should support the top line, to some extent.
Focusing on expense management, CBOE Holdings expects core expenses to be slightly below the initial guidance range of $211–$215 million for full-year 2016. In addition, the company anticipates depreciation and amortization to be slightly below the prior guidance range of $46–$48 million for the year.
Further, the Chicago, IL-based company remains focused on expansion through strategic acquisitions. In Sep 2016, CBOE Holdings announced that it is set to acquire Bats Global Markets for $3.2 billion in a cash-stock deal. The proposed acquisition, expected to close in first-half 2017, will expand and diversify CBOE Holdings’ product portfolio with the addition of U.S. and European cash equities, Global ETPs and Global FX. The combined entity will not only offer industry-leading market data products and services, but will also enjoy a compelling global distribution network.
Notably, CBOE Holdings anticipates achieving $50 million in annualized expense synergies within three years of the acquisition. The metric is likely to increase to $65 million within five years of the closure of the transaction. Undoubtedly, the acquisition creates opportunities for substantial EPS growth in future.
However, we remain apprehensive due to several headwinds, including stiff competition and stricter regulations in the industry. Also, the derivatives exchange industry exhibits weakness, primarily due to the deteriorating credit quality that impacts liquidity, along with a decline in matched share volume and value traded.
Over the last 30 days, the Zacks Consensus Estimate for 2016 and 2017 increased slightly to $2.37 and $2.62, respectively.
CBOE Holdings currently carries Zacks Rank #3 (Hold).
Stocks to Consider
E*TRADE Financial Corp. : Over the last 60 days, the Zacks Consensus Estimate for the current year increased 3.5% to $1.79 and advanced 5.2% to $1.83 for 2017. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Synchrony Financial (SYF - Free Report) : The Zacks Consensus Estimate for 2016 moved up 1.5% to $2.68 for 2016 and 1.7% to $3.08 for 2017, over the last 60 days. The company carries a Zacks Rank #2 (Buy).
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>